I joined Goldman Sachs in 2005, after five flailing years in a physics Ph.D. program at Berkeley.

The average salary at Goldman Sachs in 2005 was $521,000, and that’s counting each and every trader, salesperson, investment banker, secretary, mail boy, shoe shine, and window cleaner on the payroll. In 2006, it was more like $633,000.

In the summer of 2005, I took one look at my offer letter and the Goldman Sachs logo above it, another look at my sordid grad student pad, and I got on a plane to New York within the week. I packed my copy of Liar’s Poker for reference.

My job on arrival? I was a pricing quant on the Goldman Sachs corporate credit trading desk1. We traded credit-default swaps, both distressed and investment-grade credit, and in the bizarre trading experiment assigned to me, the equity part of the corporate capital structure as well.

There were other characters in this drama. The sales guys were complete tools, with a total IQ, summing over all of them, still safely in the double digits. The traders were crafty and quick-witted, but technically unsophisticated and with the attention span of an ADHD kid hopped up on meth and Jolly Ranchers. And the quants (strategists in Goldman speak)? Mostly failed scientists (like me) who had sold out to the man and suddenly found themselves, after making it through two years of graduate quantum mechanics, with a bat-wielding gorilla peering over their shoulder (that would be the trader) asking them where their risk report was.

... The sad truth is: quants were the eunuchs at the orgy. We were the ever-present British guy in every Hollywood WWII film: there to add a touch of class and exotic sophistication, but not really matter much to the plot (and maybe even conveniently take some bad guy’s bullet).

But things weren’t all bad! At its best, when the markets presented an apocalyptic Boschian landscape of damned souls torn asunder by hellish tortures, every Goldman grunt, sergeant, or general would close ranks and form a Greek phalanx of greed. Unlike almost every other bank on the street, Goldman could actually calculate its risk across desks and asset classes, out to five decimals [see footnote].

... What’s work like now? Writing code. Worrying about everything from our credit card billing to the pile of dirty dishes in the sink that will give us all diptheria some day. Writing linkbait blog posts to get us free PR (like the one you’re reading now). Schmoozing with investors, and playing the junior high school popularity contest that is startup funding. Keeping jealous tabs on other startups to see how they’re doing compared to us. Trying to put myself in the mind of our users to make something they’d want. Oh, and launching…finally, good God…launching.

You see, starting a product from an empty text buffer is very different from keeping a well-oiled money-machine running8. I’ve had apocalyptic fights with the other founders that almost ended in fisticuffs. I’m watching my four-month-old daughter grow up via Skype. These jeans I’m wearing will likely fuse with my skin at some point if I don’t take them off. I haven’t seen a paycheck or a loving woman in much too long.

You know what I regret most though, going from Goldman to this?

Not having made the switch earlier. ...

[Some footnotes]

It’s a somewhat different story on structured credit desks, where numerical modeling is perceived to be more important. Also, on algorithmic trading desks, where the quant writes the code that does the trading, and the sometimes blurry line between quant and trader basically disappear.

At the risk of getting sued, let me throw you geeks a bone and part the Goldman veil a bit. The Goldman Sachs risk system is called SecDB (securities database), and everything at Goldman that matters is run out of it. The GUI itself looks like a settings screen from DOS 3.0, but no one cares about UI cosmetics on the Street. The language itself was called SLANG (securities language) and was a Python/Perl like thing, with OOP and the ORM layer baked in. Database replication was near-instant, and pushing to production was two keystrokes. You pushed, and London and Tokyo saw the change as fast as your neighbor on the desk did (and yes, if you fucked things up, you got 4AM phone calls from some British dude telling you to fix it). Regtests ran nightly, and no one could trade a model without thorough testing (that might sound like standard practice, but you have no idea how primitive the development culture is on the Street). The whole thing was so good, I didn’t even know what an ORM really was until I started using Rails and had to wrestle with ActiveRecord. The codebase was roughly 15MM lines when I left, and growing. I suspect my retinas are still scarred by the weird color blue SecDB was by default.

If doing a startup is like rolling a boulder up a hill, then working at Goldman Sachs is like rolling it down the hill: you just have to stay out of the way of the boulder.

9 comments:

Well, I'm sure lots of the Goldman people are smart and all that. But were they all *that* much smarter than the Bear people and the Lehman people and the Merrill people and the Morgan people?

I had a very strong impression that in late 2008 Goldman was about two weeks from going the Lehman route until the desperate Feds opened up the spigots and handed them almost unlimited amounts of free government money, which thereby calmed the market panic and saved them.

Betting on a Las Vegas roulette wheel is a very good and safe business model, so long as someone will always cut you a break and cancel the bet if the wrong number eventually comes up.

I think they would have gone down like Lehman without government intervention. But I do think they are better run than the other shops. This example of knowing their instantaneous firm-wide risk is just one example.

"I had a very strong impression that in late 2008 Goldman was about two weeks from going the Lehman route until the desperate Feds..."

This means little. As Ace Greenberg has said the problem with the i-bank business model is that i-banks can't survive rumor. Goldman might have lost its credit overnight even with a GEICO balance sheet.

Well, perhaps. But wasn't Goldman leveraged something like 32-to-1 at the time of the Meltdown? It seems to me that if you operate under that sort of leverage ratio, it's pretty easy to make huge profits when circumstances are favorable, but also pretty easy to go "poof!" when they're not...

Goldman got something like $12.9 billion from AIG in credit fault swaps, which got the money from the Federal govt, and $10 billion in direct bailout funds.The $10 billion was repaid, but the AIG bailout money never was. Without that, Goldman would've gone under. Which shows you the benefit of being politically connected.Wall Street: Money Never Sleeps does a good job explaining all of this.

I'd be curious if anyone knows if the traders, in the longterm, can survive with the quants in the game.

Goldman got something like $12.9 billion from AIG in credit fault swaps, which got the money from the Federal govt, and $10 billion in direct bailout funds.The $10 billion was repaid, but the AIG bailout money never was. Without that, Goldman would've gone under. Which shows you the benefit of being politically connected.Wall Street: Money Never Sleeps does a good job explaining all of this.

I'd be curious if anyone knows if the traders, in the longterm, can survive with the quants in the game.

GS's Buffet investment and the massively oversubscribed secondary at $123 took place *after* LEH want under and *before* the TARP's CPP. And, according to Senator Levin, GS was not particularly exposed to toxic mortgages. So, one wonders exactly what would have driven GS under unless the claim is that the entire banking sector would have gone under with GS being the very last bank to turn out the lights ...

Goldman was paying acute attention to its counterparty risk. So GS already had collateral from AIG for the ABACUS deals, and owned credit default swaps on AIG itself, so there would have been minimal direct damage from a hypothetical AIG backruptcy. But GS couldn't have survived as a business-of-one, so without the bailouts to shore up confidence in the financial system as a whole, GS would've went poof too.